Managerial Accounting- Chapter 19

Brother Company uses variable costing. Their direct materials are $8, direct labor is $6 and total overhead is $5 of which $3 is variable. What is Brother Company's total unit cost?

$ 17 8 + 6 + 3 = 17

Commonwealth Company has the following unit costs: direct materials $2, direct labor $4, variable overhead $1, fixed overhead $3. Under the absorption costing method, what is the total unit cost?

$10 2 +4 + 1 + 3= 10

Cost information from _________ (neither, both) costing method(s) is helpful to management in setting prices

both

A contribution margin income statement shows:

sales- variable costs

If management incentives are tied to income under absorption costing, which of the following may occur (select all that apply):

- increased storage costs. - possible obsolescence - increased financing costs

When using absorption costing, all of the following are included in product costs (select all answers that are applicable):

- variable overhead - direct labor - direct materials - fixed overhead

Trudy Company is using variable costing. Which of the following items would be included in Trudy's product costs? Select all that are correct. (Check all that apply).

- variable overhead - direct materials - direct labor

Which costing method can be helpful to management in setting prices because it reflects full costs that sales must exceed for the company to be profitable?

absorption costing

If management incentives are tied to income under absorption costing, which of the following may occur:

possible inventory obsolescence

Differences in income between variable costing and absorption costing is due to

timing

True or false: When units produced are less than units sold, net income under absorption costing will be less than net income computed under variable costing.

true

Hamilton Company has decided to use variable costing and has identified the following costs: direct materials $5, direct labor $10, variable overhead $3, fixed overhead $2. What is Hamilton Company's total unit cost?

$18 5 + 10 + 3 =18

Contribution margin is the excess of

Sales - Variable Costs

A __________ format income statement reports variable costs separately from fixed costs.

contribution

An income statement which separately reports variable costs from fixed costs is known as a(n)

contribution format

Sales minus variable costs is called ______ ______

contribution margin

Regardless of whether variable costing or absorption costing is used, if quantity produced differs from quantity sold, income will be _______ (similar, different, indeterminable).

different

Regardless of whether variable costing or absorption costing is used, if quantity produced differs from quantity sold, income will be _________ (similar, different, indeterminable).

different

When using absorption costing when production is greater than sales, a portion of fixed overhead is allocated to:

ending inventory

When units produced equals units sold, income under variable costing as compared to net income under absorption costing will be

equal to

Production planning is important because producing too much can lead to _____ (excess, insufficient) inventory.

excess

Under absorption costing, fixed overhead is allocated to products sold, so when production is greater than units sold, net income will be _________ (greater, less) than income calculated under variable costing.

greater

Managers should accept special orders if the special-order price

is greater than variable cost

When units produced are greater than units sold, variable costing net income will be ________ (less, greater) than net income calculated under absorption costing.

less

Under the _________(absorption,variable) costing method only variable costs are assigned to products.

variable

Loudon Company has the following unit costs: direct materials $6, direct labor $3, variable overhead $2, fixed overhead $1. Under absorption costing, total unit cost is:

$12 6 + 3 + 2 + 1 = 12

The key difference between absorption and variable costing is _________ (fixed, variable) overhead.

fixed

When units produced are less than units sold, net income computed under variable costing will be _______ (greater, less) than net income computed under absorption.

greater

Over the _________ run, selling prices must cover both fixed and variable costs.

long

When units produced are greater than units sold under variable costing, fixed overhead is an expense and results in ________ (lower, higher) net income than under absorption costing.

lower

Since service firms do not produce inventory, they should focus primarily on

variable costs

When units produced equals units sold, income under absorption costing will be________ (>,<,=) net income under variable costing.

=

A system of rewarding managers by linking bonuses to income computed under absorption costing may result in:

excess inventory buildup

Makum Company is using variable costing. Which of the items below would you see on Makum's income statement?

- contribution margin - net income - variable expenses

The main difference between absorption and variable costing is their treatment of

fixed overhead

Service firms should focus on _____ costs in managerial decisions.

variable

Makum Company is using a traditional (absorption) costing system. Which of the items below would you see on Makum's income statement?

- cost of goods sold - gross profit - net income

An income statement which shows the excess of sales over variable costs is referred to as a __________ ________ income statement

contribution margin